The UK Gambling Commission estimates the UK remote gambling market at £2 billion per year. Since most of online gaming operations are based in tax havens such as Gibraltar, the current remote gambling duty, which is taxed at 15% of gross profits, witnesses most tax-based returns to the UK going into outside coffers. In the Queen’s speech to the new Parliament on May 8, 2013, the new Gambling (Licensing and Advertising) Bill was announced. This bill aims at protecting the interests of online gaming customers and changes the way overseas firms are regulated.
Currently, gambling operations based in Britain need to have a Gambling Commission license. There are no limits on the number of licenses and operators can freely advertise in print and on TV. However, the British tax environment has led to more and more online gaming operations based outside the UK, which meant that the British tax on gambling had no effect on them. The new bill will require all operators selling to or advertising in the British market to hold a license. For the first time, gambling operations based overseas, will have to pay gambling taxes on the profits from their UK customers. Till now, the Gambling Act 2005 recognized internet gambling licenses issued in other jurisdictions, such as the Isle of Man, Gibraltar and Malta. Operators from these locations could enjoy their freedom from the 15% remote gambling tax.
UK Gambling Tax: Will They, Won’t They?
British online gaming customers spent an estimated £1.72 billion in 2012. The new bill is expected to bring in £260 million in gambling tax. However, the earlier model offered low taxes and high customer payouts. The new bill will change this situation into a ‘point of consumption’ tax instead of a ‘location’ or point of origin tax. The regulation rides on the back of the fact that the UK is a prime market and most operations would want to hang on to their customer base. This also means that operators will not have to pay taxes on customers from players from other parts of the world.
The general consensus is that online gaming does not go well with high tax environments. Gibraltar, which is already home to some of the most successful players, has planned to oppose the move. A statement made by the Gibraltar Betting and Gaming Association (GBGA) earlier in 2013 to the House of Commons Culture, Media and Sport Committee said, “In the event that the Government determines to proceed with the proposed legislation and fiscal reforms, the GBGA will regrettably have little alternative but to institute judicial review proceedings to challenge these measures.” The basis of their argument is that the move is regressive from the Gambling Act 2005-ensured free market system to a more restrictive system that goes against EU law.
The Gambling ((Licensing and Advertising) Bill aims at greater protection for UK-based customers. This also implies that tougher enforcement measures will be adopted, including the creation of new criminal offenses. Operators will have to report suspicious betting patterns from UK customers to the Gaming Commission. The secondary objective of the new bill is to ‘level the regulatory field for all operators’ and to allow UK-based operators to compete on an ‘equal footing.’ While the stated objectives are to tackle corruption in the sport, it’s no secret that the UK government wants its online gaming enthusiasts to contribute to public finances. Meanwhile, the industry actually wants the government to reconsider the 15% and have even commissioned a report from KPMG to add to their demands for lower tax, below 10%. Furthermore, they do not expect EU law to permit the switch from a free market system and the bill is likely to face some legal challenges as well.
The point of consumption approach first raised its highly debatable head in a policy suggested by a group of coalition ministers two years ago. The bill is expected to be introduced by the last quarter of 2014 and until then, let’s just wait and see if it works for all the parties involved.